In English, kabushiki kaisha is usually used while the original Japanese pronunciation is kabushiki gaisha due to rendaku.

A kabushiki kaisha must include "株式会社" in its name (Article 6, paragraph 2 of the Companies Act). In a company name, "株式会社" can be used as a prefix (e.g. 株式会社電通Kabushiki gaisha Dentsū, which is called "mae-kabu") or as a suffix (e.g. トヨタ自動車株式会社Toyota Jidōsha Kabushiki gaisha, which is called "ato-kabu").

Many Japanese companies translate the phrase "株式会社" in their name as "Co., Ltd." while others use the more Americanized translations "Corporation" or "Incorporated". English texts often refer to kabushiki gaisha as "joint stock companies"; while this is close to a literal translation of the term, the two are not the same. The Japanese government previously endorsed "business corporation" as an official translation[1] but now uses more literal translation "stock company".[2]

Because of limited space, or for other reasons, in Japanese, it is common to abbreviate "株式会社" in a company name on signage (including the sides of their vehicles) to just 株 in parentheses, as, for example, "ABC(株)", where the full, formal name would be "ABC株式会社".

Rules regarding kabushiki gaisha were set out in the Commercial Code of Japan. During the American Liberation following World War II, the liberation authorities introduced revisions to the Commercial Code based on the Illinois Business Corporation Act of 1933, giving kabushiki gaisha many traits of American corporations.[3]

Over time, Japanese and U.S. corporate law diverged, and K.K. assumed many characteristics not found in U.S. corporations. For instance, a K.K. could not buy back its own stock (a restriction which still stands), issue stock for a price of less than ¥50,000 per share (effective 1982), or operate with paid-in capital of less than ¥10 million (effective 1991-2005).[4]

On June 29, 2005, the Diet of Japan passed a new Companies Act (会社法,kaisha-hō?), which took effect on May 1, 2006.[5] The new law greatly affected the formation and function of K.K.'s and other Japanese business organizations, bringing them closer to their contemporary counterparts in the U.S.[citation needed] Prominent examples are the renaming of Nikon KK and Sony KK to Nikon Corporation and Sony Corporation, respectively.

A kabushiki gaisha may be started with capital as low as ¥1, making the total cost of a K.K. incorporation approximately ¥240,000 (about US$2,500) in taxes and notarization fees. Under the old Commercial Code, a K.K. required starting capital of ¥10 million (about US$105,000); a lower capital requirement was later instituted, but corporations with under ¥3 million in assets were barred from issuing dividends, and companies were required to increase their capital to ¥10 million within five years of formation.[6]

The incorporation of a K.K. is carried out by one or more incorporators(発起人,hokkinin?, sometimes referred to as "promoters"). Although seven incorporators were required as recently as the 1980s, a K.K. now only needs one incorporator, which may be an individual or a corporation. If there are multiple incorporators, they must sign a partnership agreement before incorporating the company.[citation needed]

The value or minimum amount of assets received in exchange for the initial issuance of shares

Additionally, the articles of incorporation must contain the following if applicable:

Any non-cash assets contributed as capital to the company, the name of the contributor and the number of shares issued for such assets

Any assets promised to be purchased after the incorporation of the company and the name of the provider

Any compensation to be paid to the incorporator(s)

Non-routine incorporation expenses that will be borne by the company

Other matters may also be included, such as limits on the number of directors and auditors. The Corporation Code allows a K.K. to be formed as a "stock company that is not a public company" (公開会社でない株式会社,kōkai gaisha denai kabushiki gaisha?), or a (so-called) "close company" (非公開会社,hi-kōkai gaisha?), in which case the board of directors must approve any transfer of shares between shareholders; this designation must be made in the articles of incorporation.[citation needed]

The articles must be sealed by the incorporator(s) and notarized by a notary public, then filed with the Legal Affairs Bureau in the jurisdiction where the company will have its head office.[citation needed]

In a direct incorporation, each incorporator receives a specified amount of stock as designated in the articles of incorporation. Each incorporator must then promptly pay its share of the starting capital of the company, and if no directors have been designated in the articles of incorporation, meet to determine the initial directors and other officers.[citation needed]

The other method is an "incorporation by offering," in which each incorporator becomes the underwriter of a specified number of shares (at least one each), and the other shares are offered to other investors. As in a direct incorporation, the incorporators must then hold an organizational meeting to appoint the initial directors and other officers. Any person wishing to receive shares must submit an application to the incorporator, and then make payment for his or her shares by a date specified by the incorporator(s).[citation needed]

Capital must be received in a commercial bank account designated by the incorporator(s), and the bank must provide certification that payment has been made. Once the capital has been received and certified, the incorporation may be registered at the Legal Affairs Bureau.[citation needed]

Under present law, a K.K. must have a board of directors (取締役会,torishimariyaku kai?) consisting of at least three individuals. Directors have a statutory term of office of two years, and auditors have a term of four years.[citation needed]

Small companies can exist with only one or two directors, with no statutory term of office, and without a board of directors (取締役会非設置会社,torishimariyaku kai hisetchigaisha?). In such companies, decisions are made via shareholder meeting and the decision-making power of the directors is relatively limited. As soon as a third director is designated such companies must form a board.

At least one director is designated as a representative director (代表取締役,daihyō torishimariyaku?), holds the corporate seal and is empowered to represent the company in transactions. The representative director must "report" to the board of directors every three months; the exact meaning of this statutory provision is unclear, but some legal scholars interpret it to mean that the board must meet every three months. In 2015, the requirement that at least one director and one representative director must be a resident of Japan was changed. It is not required to have a resident representative director although it can be convenient to do so..[7]

Directors are mandatories (agents) of the shareholders, and the representative director is a mandatory of the board. Any action outside of these mandates is considered a breach of mandatory duty.[8]

Every K.K. with multiple directors must have at least one statutory auditor (監査役,kansayaku?). Statutory auditors report to the shareholders, and are empowered to demand financial and operational reports from the directors.

K.K.s with capital of over ¥500m, liabilities of over ¥2bn and/or publicly traded securities are required to have three statutory auditors, and must also have an annual audit performed by an outside CPA. Public K.K.s must also file securities law reports with the Ministry of Finance.[citation needed]

Close K.K.s may also have a single person serving as director and statutory auditor, regardless of capital or liabilities.

A statutory auditor may be any person who is not an employee or director of the company. In practice, the position is often filled by a very senior employee close to retirement, or by an outside attorney or accountant.[citation needed]

Japanese law does not designate any corporate officer positions. Most Japanese-owned kabushiki gaisha do not have "officers" per se, but are directly managed by the directors, one of whom generally has the title of president (社長,shachō?). The Japanese equivalent of a corporate vice president is a department chief (部長,buchō?). Traditionally, under the lifetime employment system, directors and department chiefs begin their careers as line employees of the company and work their way up the management hierarchy over time. This is not the case in most foreign-owned companies in Japan, and some native companies[which?] have also abandoned this system in recent years in favor of encouraging more lateral movement in management.[citation needed]

Corporate officers often have the legal title of shihainin, which makes them authorized representatives of the corporation at a particular place of business, in addition to a common-use title.[citation needed]

Kabushiki gaisha are subject to double taxation of profits and dividends, as are corporations in most countries. In contrast to many other countries, however, Japan also levies double taxes on close corporations (yugen gaisha and gōdō gaisha). This makes taxation a minor issue when deciding how to structure a business in Japan. As all publicly traded companies follow the K.K. structure, smaller businesses often choose to incorporate as a K.K. simply to appear more prestigious.[citation needed]

In addition to income taxes, K.K.s must also pay registration taxes to the national government, and may be subject to local taxes.[citation needed]

Generally, the power to bring actions against the directors on the corporation's behalf is granted to the statutory auditor.[citation needed]

Historically, derivative suits by shareholders were rare in Japan. Shareholders have been permitted to sue on the corporation's behalf since the postwar Americanization of the Commercial Code; however, this power was severely limited by the nature of court costs in Japan. Because the cost to file a civil action is proportional to the amount of damages being claimed, shareholders rarely had motivation to sue on the company's behalf.[citation needed]

In 1993, the Commercial Code was amended to reduce the filing fee for all shareholder derivative suits to ¥8,200 per claim. This led to a rise in the number of derivative suits heard by Japanese courts, from 31 pending cases in 1992 to 286 in 1999, and to a number of very high-profile shareholder actions, such as those against Daiwa Bank and Nomura Securities[9]